This paper analyzes the behavior of international capital flows by foreign and domestic agents,
dubbed gross capital flows, over the business cycle and during financial crises. We show that
gross capital flows are very large and volatile, especially relative to net capital flows. When
foreigners invest in a country, domestic agents invest abroad, and vice versa. Gross capital flows
are also pro-cyclical. During expansions, foreigners invest more domestically and domestic
agents invest more abroad. During crises, total gross flows collapse and there is a retrenchment
in both inflows by foreigners and outflows by domestic agents. These patterns hold for different
types of capital flows and crises. This evidence sheds light on the sources of fluctuations driving
capital flows and helps discriminate among existing theories. Our findings seem consistent with
crises affecting domestic and foreign agents asymmetrically, as would be the case under the
presence of sovereign risk or asymmetric information.